4 Ways Digital CX Leaders Can Use Open Banking and APIs

Financial institutions can take more advantage as open banking becomes more commonplace if digital banking leaders and customer experience experts take a more direct hand in implementation.
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Open banking, in the context of retail financial services, enables the sharing of customers’ data beyond the account provider. It provides a foundational layer for transactions and tools from consolidated financial planning apps to faster loan approvals, and it is exploding. To get more from the open banking boom, digital and customer experience leaders must sharpen their approach to building features and take a more proactive role in setting the open banking agenda.

Advances in open banking enablement, from data sharing and security, to cleaning and enrichment, are coming quickly. This new momentum creates opportunities for banks and credit unions. But progress has been uneven as open banking hasn’t thus far developed in a way that supports financial institutions delivering their customers new and better personalized insights and experiences.

One fundamental reason: Digital and experience leaders are not driving the agenda.

Successful bank digital and experience leaders must put the bank-customer relationship at the forefront and build open banking features that engage both consumers and small businesses.

There are signs that digital and experience leaders are engaging customers with features such as just-in-time nudges that help customers save money, credit offers based on a wider view of a customer’s finances, and benchmarking for businesses. But the best ideas could go far beyond these capabilities.

Making Open Banking Fulfill Its Promise

Elements of open banking have been in use for over two decades, from Open Financial Exchange connections to Personal Financial Management products, to screen scraping and other initiatives. Even looking up the balance of your bank account using another bank’s ATM is, at its heart, open banking.

In the last five years, industry players (and increasingly regulators) have rallied around a vision of open banking as a set of APIs, data standards, regulatory postures and business policies that support a customer accessing a bank account on demand through a third party.

In developing this vision, industry players are ahead of regulators. Section 1033 of 2010’s Dodd-Frank Act requires financial institutions to provide customers their account-related data on request. Nearly 12 years later, the Consumer Financial Protection Bureau has yet to fully implement rules governing this activity. Meanwhile, fintechs have forced the issue by creating popular products that rely on access to bank and other financial accounts. Regulators are catching up: CFPB is seemingly on the cusp of fully implementing Section 1033, a step likely to codify the responsibilities of banks and other parties.

In the meantime, the largest banks have responded to the fintech push. All are implementing data APIs; some maintain formal developer programs. The Clearing House and its members seek to foster a common framework with a new data sharing standard, Financial Data Exchange (FDX), at its center. FDX, now on version 5.0, is intended to support everything from tax reporting data to mortgage origination. In short, open banking is maturing quickly in many ways. Infrastructure fintechs such as Plaid and MX have signaled their support of regulations covering anyone who touches customer data, while infrastructure fintechs, digital banking providers and others are helping institutions share data through APIs.

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4 Ways Digital Leaders Should Put Customers First Via Open Banking

The open banking opportunity will favor digital capabilities that use external data to provide consumers and small businesses just-in-time information, streamlined task flows, nudges and alerts. Features that require customers to invest their own time and energy have limited appeal.

Digital teams can create value by taking the following approach:

1. Don’t focus on what customers can see — focus on helpful things they can learn or do.

When several large banks and brokerages rolled out account aggregation (balances from various providers all on one page), one flaw doomed their efforts: While consumers told market researchers they wanted it, using account aggregation day after day didn’t solve any of their critical needs. Consumers who tried it tired of it. Many never saw the point of completing the cumbersome setup and maintenance.

Then banks and brokerages used external data to support account-to-account transfers, establishing that the customer owned an external account and fetching the balance when the customer made a transfer. Now the consumer got something they needed — access to an external account and the balance in it — just when they needed it.

Customers saw much less information than they would looking at a page of account balances and yet obtained more value. These types of enhancements will help drive consumer interest.

2. Don’t measure success by time and frequency of logins. Measure the change in customer value.

The vast amount of data and functionality that open banking makes possible is in tension with people’s desire to spend less time on their banking.

This tension is especially dangerous when digital teams measure success by number of logins and total session time. These “success” metrics tempt digital teams to use open banking to build things that soak up the customer’s time and attention and encourage more transactions. This is not creating value for the customer or, ultimately, the financial institution.

Open Banking's Essential Question:

Teams should ask of every customer-facing feature and experience: Does this help get the customer where they're trying to go?

If an institution has its customers’ backs and tells them what they need to know when they need to know it, mobile logins may plummet — but retention will skyrocket.

3. Earn the customer’s permission to pull in more data.

The key lesson of most efforts to build PFM tools into digital banking has been the high barrier to feedback in the form of the customer’s time and effort. If people must spend time categorizing or re-categorizing transactions, or if spending is on a credit card the customer hasn’t yet added to their account, the PFM provides little value.

PFM's Big Flaw:

Unfortunately, people typically give up rather than put in the work to get useful insights.

How can banks encourage customers and bank teams to engage with features built on open banking? First, deliver insights that are truly helpful to customers and, second, train bank staff to understand, support and assist customers with the institutionally shared information via open banking.

For example, a bank could alert a customer of an upcoming cash crunch and suggest transferring funds from an external account with sufficient funds to cover the shortfall via digital or live assistance.

4. Align digital with the frontline bank teams who support your customers.

Ideally, open banking initiatives will harness all customer touchpoints to create optimal and consistent experiences.

Banks' Prime Open Banking Blunder:

When innovating, it can be tempting to think digital-only — leaving behind customer-facing team members such as branch bankers, call center reps and live chat reps.

If all touchpoints are not included, the result is broken customer journeys, branches left in the technological stone age, and frustrated financial advisors who can’t see what an app is recommending to the customer.

Customer journey mapping for new digital features and experiences often misses the role of other channels because digital and experience teams aren’t asking the right questions. One such question: “If a customer did walk into a branch, open live chat, or ask their advisor about this feature, why would that be? What do we and the customer want from this interaction?”

A customer-first approach to open banking enables branch bankers and other frontline team members to support a streamlined and holistic experience for account acquisition, customer insights and advisory services.

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